Islamabad, February 29, 2024 – The Federal Board of Revenue (FBR) has taken a significant stride by invoking Section 7E of the Income Tax Ordinance, 2001, in response to a division bench overturning the earlier decision of a single bench.
Announced on Wednesday, this move holds notable tax implications for immovable properties falling within the jurisdiction of the Lahore High Court.
The FBR’s directive to the tax offices in Punjab specifies that Section 7E, dealing with deemed income on immovable properties, will now be applicable in cases falling under the Lahore High Court’s jurisdiction from February 15, 2024. Consequently, the FBR is set to issue updated instructions to its field formations, partially modifying the earlier guidelines of Circular No. 03 of 2023-24.
This decision effectively revokes the prior instructions that excluded Section 7E of the Income Tax Ordinance from application within the Lahore High Court’s jurisdiction. The withdrawal takes effect from February 15, 2024, as per the latest announcement.
Per the FBR’s instructions, the Lahore High Court nullified the earlier decision of the single bench through ICA No.35908 of 2023, dated February 15, 2024. The FBR clarifies that the initial instructions were issued through Circular No. 03 of 2023-24 on August 15, 2023, aiming to address challenges in implementing the newly inserted sub-section(21t) of section 236C of the Income Tax Ordinance, 2001, introduced through the Finance Act, 2023.
The single bench of the Lahore High Court, in W.P. No. 52559 of 2022 dated April 6, 2023, had declared the provisions of Section 7E ultra vires concerning Entry 47 of Part-I of the Fourth Schedule to the Constitution of Pakistan. Consequently, the operation of Section 7E was suspended within the Lahore High Court’s jurisdiction.
Responding to this suspension, the FBR filed an Intra Court Appeal before the Lahore High Court. In its recent decision dated February 15, 2024, the Court set aside the previous judgment of the single bench.
In consideration of the Lahore High Court’s ruling through ICA No. 35908 of 2023 titled “The Commissioner Inland Revenue Vs Muhammad Osman Gul,” dated February 15, 2024, the FBR is retracting its earlier instructions regarding the non-applicability of Section 7E in cases falling under the Lahore High Court’s jurisdiction.
This development provides clarity on the tax implications for immovable properties within the Lahore High Court’s jurisdiction. It highlights the dynamic nature of tax regulations and their interpretation within the legal framework. As stakeholders analyze this development, the impact on property owners and the broader tax ecosystem remains to be seen.
